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Semgroup to Acquire Houston Fuel Oil Terminal for $2.1 B

Tulsa-based midstream player SemGroup Corporation SEMG recently clinched a $2.1 billion deal to acquire Houston Fuel Oil Terminal Co from investment funds managed by Alinda Capital Partners. The agreement will advance Semgroup’s Gulf-Coast strategy. Notably, this is the biggest acquisition deal signed by the company to date. The deal will provide the company with ownership of one of the largest U.S. oil terminals.

Deal Highlights

Per the deal, SemGroup will gain ownership of about 330 acres along the Houston Ship Channel. The deal is scheduled to close in the third quarter of 2017, subject to government approvals and other satisfactory closing conditions.

The deal will be primarily funded by the combination of cash and stock in two installments, one when the deal closes and other before the end of 2018. The first payment of $1.5 billion will be made at the closure of the deal. This includes assumption of $785 million of debt of Houston Fuel Oil Terminal along with the issuance of $300–$400 million shares to Alinda. The shares will be issued at SemGroup’s election at $32.30 per share. The company’s revolving credit facility will finance the remaining of the first installment. The second installment will include $600 which would be paid in cash by the end of 2018.

Houston Fuel Oil Terminal

Houston Fuel Oil Terminal stores, blends and transports residual and crude oil via pipeline, ship, barge, rail and truck. With the capacity of 16.8 million-barrels, Houston-based terminal along the U.S. Gulf Coast has extensive pipeline connectivity. The terminal is currently on its expansion phase having a number of projects underway. These include a new ship dock, a new pipeline and connections, as well as an additional 1.45 million barrels of crude oil storage, expected to be in service by mid-2018.

Deal Benefits

Addition of Houston-based terminal is set to expand the geographical diversity and footprint of SemGroup, which currently owns assets in Colorado, Eagle Ford, North Texas, Oklahoma, North Dakota, Canada, Mexico and U.K. The terminal is also complementary to SemGroup’s existing assets in the middle of North America.

The deal would enable SemGroup to gain synergies and leverage the well established and long-tenured customer base. This in turn will boost shareholders value. With the successful completion of the deal, around 125 employees of Houston Fuel Oil Terminal are likely to join SemGroup.

The acquisition is set to enhance SemGroup’s cash flows along with providing it with several growth opportunities. It will help it to capitalize on the lucrative Gulf Coast deepwater terminal market. The deal will strengthen SemGroup’s presence in the Houston Ship Channel, one of the country’s premier energy markets. Houston Ship Channel – one of the U.S.’s busiest seaports – will provide deepwater access to SemGroup. This will allow the company to reap the benefits of the increasing export volumes of crude oil and refined products resulting from the anticipated growth in the U.S. shale production.

Zacks Rank & Key Picks

SemGroup is a petroleum pipeline and storage company. The company, under the Zacks categorized Oil & Gas Production and Pipelines, currently carries a Zacks Rank #5 (Strong Sell).

Semgroup Corporation Price

Semgroup Corporation Price | Semgroup Corporation Quote

Investors interested in the broader energy space can consider some better-ranked players like Pampa Energia S.A. PAM and RWE Aktiengesellschaft RWEOY. Atlantic Power Corporation AT can also be a viable pick.

Pampa Energia is expected to report year-over-year growth of 38,200% in its earnings in 2017.

RWE is expected to report year-over-year growth of 42.45% in its earnings in 2017.

Atlantic Power is expected to report year-over-year growth of 19.54% and 183.33% in its sales and earnings, respectively, in 2017.

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